TaxTMI 
TaxTMI 
2011 (2) TMI 688
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....ge the validity of the aforementioned Press Release and Notification as being ultra vires of the Foreign Trade (Development & Regulation) Act, 1992 ['FTDR Act'] and violative of the fundamental rights under Articles 14 and 19(1)(g) of the Constitution of India. 2. At the outset, it must be noted that the facts in five of the six writ petitions are more or less similar. For the sake of convenience, the facts in the first petition i.e., W.P. (C) 8406 of 2010 by Gujarat Ambuja Exports Ltd. ('GAEL') are set out in detail. The facts in W.P. (C) 8548 of 2010 by Krishna Knitwear Technology Ltd. ('KKTL') are somewhat different as it is a 100% Export-Oriented Unit ('EOU'). The facts concerning KKTL will be discussed separately. Relevant provisions of the Foreign Trade Policy 2009-2014 3. The Foreign Trade Policy ('FTP') for the period 27th August 2009 to 31st March 2014 was published in the Official Gazette on 27th August 2009. The FTP states that by 2014 India's export of goods and services is expected to be doubled. India's share in the global trade is expected to be doubled by 2020. Prior to the ban on their export, cotton yarn and raw cotton were freely exportable com....
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....iction 161B 5205 Cotton yarn (other than sewing thread), containing 85% or more by weight of cotton not put up for retail sale Free The contracts for export of cotton yarn shall be registered with the Textile Commissioner prior to shipment. Clearance of cotton yarn consignments shall be given by Customs after verifying that the contracts have been registered. 5206 Cotton yarn (other than sewing thread), containing less than 85% by weight of cotton not put up for retail sale 5207 Cotton yarn (other than sewing thread), put up for retail sale. 7. In the General Notes to the Export Policy, an explanation is given for 'free exportability' as under : "Free Exportability - All goods other than the entries in the export licensing schedule along with its appendices are freely exportable. The free exportability is however subject to any other law for the time being in force. Goods not listed in the Schedule are deemed to be freely exportable without conditions under the Foreign Trade (Development and Regulations) Act, 1992 and the rules, notifications and other public notices and circulars issued there u....
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.... "(xi) The first registration will have to be done on physical presentation of application. For subsequent registration a web based system of registration and reporting compliance of EARCs is being developed, and exporters would be informed through the website of Office of the Textile Commissioner (www.txcindia.gov.in) in this regard." 9. As will be discussed later, the web based system of registration of EARC commenced on 20th November 2010, shortly before the ban on export of cotton yarn took effect. 10. The Petitioners do not question the existence of the power of the central government under the FTDR Act to impose a ban on the export of cotton yarn. Sections 3 and 5 of the FTDR Act which are relevant for the present case read as under : "3. Powers to make provisions relating to imports and exports. - (1) The Central government may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. (2) The Central government may also, by Order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in al....
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....ton Corporation of India ('CCI'); the Chairman, Cotton Textile Export Promotion Council ('TEXPROCIL'); Chairman, Apparel Export Promotion Council ('AEPC'); the Chairman, Confederation of Indian Textile Industry ('CITI'), the Chairman, South Indian Mills Association ('SIMA'), Coimbatore; President Tirupur Exports Association ('TEA'), Tirupur; the Chairman, North India Textile Manufacturers' Association ('NITMA'); Chairman, Clothing Manufacturers' Association of India ('CMAI'); Chairman, Powerloom Development and Export Promotion Council ('PDEXCIL'), Mumbai etc. This was published in the Official Gazette on 25th September 2010. 13. The CYAB met on 29th October 2010 under the Chairmanship of the Textile Commissioner, Mumbai. The minutes of the proceedings of the said meeting have been relied upon by both the parties to the present litigation. The said meeting was in continuation of the earlier meetings held on 1st and 8th October 2010. At the latter meeting a serious concern had been expressed by the Minister for Textiles "over the rising yarn/cotton prices and its impact on the downstream segments of the textile industry." A power-point presentation was made at the meeting on....
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....n the MoT to the following effect : "Press Release Ministry of Textiles has been monitoring the cotton yarn production/consumption/export situation in the country very closely. The Cotton Yarn Advisory Board (CYAB) has been constituted in September 2010 to formulate the Cotton Yarn Balance sheet for the country. Following two meetings of the CYAB on October 1st and 29th 2010, the cotton yarn balance sheet formulated indicates the production/consumption/export figures as follows : Cotton yarn supply/production 3460 million kgs Cotton yarn domestic demand 2656 million kgs Cotton yarn exports 720 million kgs Closing stock 84 million kgs Export as % of supply 21 % Yarn exports at 720 million kgs for the year 2010-11 would be the highest ever export performance achieved by the Indian spinning industry in comparison to the 589 million kgs in 2009-10 and 556 million kgs in 2008-09. In the backdrop of the increased domestic demand and to (sic 'the') address the price volatility the Government has decided that there shall be no further registration of the cotton yarn exports beyond 720 million kgs. All applications in pipeline above the export regis....
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....6 to have minor deficiencies which were rectified. It is alleged, however, that EARC was not provided for those contracts. As far as the Petitioner in W.P.(C) 8407 of 2010, Zenith Spinners, is concerned it uploaded seven export contracts between 25th and 30th November 2010. As regards the other three Petitioners, i.e., W.P.(C) 8408 of 2010 [Loknayak Jayprakash Naryan Shetkari Sahakari Soot Girni Ltd.], W.P.(C) 8627 of 2010 [Lahoti Overseas Ltd.] and W.P.(C) 8590 of 2010 [TDB Spinners Pvt. Ltd.], it is stated that they had made attempts to upload their export contracts on the internet between 25th November 2010 and 1st December 2010 but were unable to do so as the system would not accept it. 19. In the above circumstances, the W.P.(C) 8406 of 2010 was filed by GAEL in this Court assailing the validity of the press release dated 1st December 2010 as being ultra vires the FTDR Act and unconstitutional, and for a mandamus to the MoT and the Commissioner of Textiles to register export contracts entered into by the Petitioner GAEL on or before 1st December 2010. The reliefs claimed in the other petitions are similar to the ones prayed for by GAEL. 20. On 16th December 201....
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....th effect from 1-12-2010 :- S. No. Tariff Item Code Unit Item of Description Export Policy Nature of Restriction 161B 5205 Cotton yarn (other than sewing thread), containing 85% of more by weight of cotton not put up for retail sale. Restricted Export permitted under licence. 5206 Cotton yarn (other than sewing thread), containing less than 85% by weight of cotton not put up for retail sale. 5207 Cotton yarn (other than sewing thread), put up for retail sale 3. Transitional Arrangement : (i) The transitional Arrangements as available under para 1.4 & 1.5 of FTP, 2009-14 will not be applicable to the export of Cotton Yarn, under this notification. (ii) However, Exporters who have obtained Registration Certificate from Textile Commissioner, Mumbai before 1st December, 2010 would be permitted to export Cotton Yarn within the quantity limit for which such registration certificate has been issued and within the validity of such registered contract. (iii) If the validity of such registered contract has expired then th....
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....ge the said circular. They were permitted to do so. On 24th December 2010 the said amendment applications were thereafter filed by the Petitioners. The said amendment applications were allowed. Consequently the challenge in these petitions is both to the Press Release dated 1st December 2010 as well as the subsequent Notification issued by the MoCI dated 22nd December 2010. 24. During the course of hearing, Mr. A.S. Chandhiok, learned ASG produced two further Notifications dated 29th December 2010 which substituted Para 3(ii) of the Notification dated 22nd December 2010 and also explained the effect of the Notification. The relevant portion of the said Notification reads as under : "2. In Notification No. 14 (RE-2010)/2009-14, dated 22-12-2010, the phrase "before 1st December, 2010" appearing at para 3(ii) relating to Transitional Arrangements will be substituted by the phrase "on or before 1st December, 2010". The relevant para would read as follows : "3(ii) However, Exporters who have obtained Registration Certificate from Textile Commissioner, Mumbai on or before 1st December, 2010 would be permitted to export Cotton Yarn within the quantity limit for which su....
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....ring for the GAEL and four other Petitioners (other than KKTL) submitted that : (i) The Press Release dated 1st December 2010 was ultra vires Section 5 of the FTDR Act inasmuch as a policy change by banning export of cotton yarn could only be made by a notification under Section 5 read with Section 3(2) FTDR Act. Reliance was placed on the decision of this Court in Agri Trade India Services Pvt. Ltd. v. Union of India, 132 (2006) DLT 500 = 2006 (204) E.L.T. 161 (Del.)] which, on this aspect, was upheld by the Supreme Court in Union of India v. Asian Food Industries, (2006) 13 SCC 542 = 2006 (204) E.L.T. 8 (S.C.). (ii) The Notification dated 22nd December 2010 as amended by the Corrigendum dated 29th December 2010 was also without authority of law. It is further submitted that the said Notification has been issued by the DGFT who had no authority to do so. Reliance is placed on the judgment of the Supreme Court in Atul Commodities Pvt. Ltd. v. Commissioner of Customs, Cochin, (2009) 5 SCC 46 = 2009 (235) E.L.T. 385 (S.C.) (iii) There was no power in the Central government under Section 5 FTDR Act to issue the Notification retrospectively. The Petitioners soug....
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....without the authority of law, the protection of Para 3(ii) of the Notification dated 22nd December 2010 should be available till that date, i.e., 22nd December 2010. It is submitted that the Petitioners ought to have been granted EARCs prior to that date. Facts and submissions on behalf of KKTL 27. Mr. Biju Mattam, learned counsel for KKTL first referred to the facts in W.P. (C) 8548 of 2010. On 29th July 2002 the Respondents had granted KKTL a permit/approval in terms of Para 6.1 of the FTP to set up a 100% EOU for the manufacture and export of cotton yarn with an annual capacity of 5484 MT. The said permit came to be extended on 13th March 2008 for the further period of five years with an enhanced annual capacity of 8568 MT. It was subject to various conditions, violation of which would result in levying of penalty and other financial detriments. KKTL has a workforce of 1000 employees. It has secured loans from banks and financial institutions for setting up and operating the EOU. After the impugned Notification was issued KKTL had to close its operations completely. Production has been stopped since January 2011 and stock of 200 MT is lying unutilized in the warehouse....
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....of the Constitution. There was no overriding public interest that justified this measure. Learned counsel also relied on the cases cited by Mr. Parekh as regards promissory estoppel and legitimate expectation. 30. As regards the meeting of the CYAB, it was submitted by Mr. Mattam that there were divergent views expressed in the meeting and, therefore, the Respondents ought not to have relied on the minutes of the meeting for imposing the impugned ban. Further, in redrawing the cotton balance sheet the consumption requirement of EOUs like KKTL was not accounted for. Even the Notification No. 18 (RE-2010)/2009-14 dated 24th January 2011 which lifts the ban in case the cotton yarn is manufactured out of imported raw cotton did not help KKTL. It is stated that the production of cotton yarn from imported raw cotton would be financially unviable for KKTL. Further, KKTL cannot be compelled to base its production on imported raw cotton especially when there was no actual shortage of domestic raw cotton. As regards the restriction on the export of raw cotton to 55 lakh bales, it is submitted that there has been no replacement of earlier Notification No. 12 (RE-2010)/2009-14, dated 1....
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....d that the number of EARCs sought to be registered by it, increased from a mere 403.03 MT in September 2010 to 970.80 MT in October 2010 and 5470.02 MT in November 2010. On 27th November 2010 alone EARCs for a quantity of 4623.929 MT were sought. A further quantity of 662.736 MT was sought to be registered on 1st December 2010. Likewise, the figures have been given for other Petitioners in detail which show that there was a quantum leap in the months of October 2010 and November 2010 of the quantities for which EARCs were sought. According to Mr. Chandhiok, it was clear that the Petitioners were aware of the impending ban and were trying to make the best of the situation. 34. As regards KKTL, Mr. Chandhiok pointed out that clause 7 of the terms and conditions of the permit/approval granted to it accounted for contingencies like the present one. Clause 7 of the terms and conditions reads as under : "7. In the event of the unit failing to fulfill the terms & conditions of Letter of Permission (LOP)/Letter of Intent (LOI) and NFE as prescribed in the EOU Scheme, except when the fulfillment of such condition is prevented or delayed because of any law & order, proclamati....
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....d under Para 1.5 of the FTP shall not be applicable for export of pulses against irrevocable LCs opened on or after 22nd June 2006 "as the decision of the Government prohibiting the export of pulses was announced and got widely publicized on 22-6-2006 in the electronic and print media." 39. The main ground on which the Petitioners in the said case questioned the validity of the Notification dated 4th July 2006 was that it was a piece of a delegated legislation and even if the Central government could restrict or prohibit the export of certain goods it cannot seek to make it retrospective with a view to adversely affect contractual and obligatory rights that have already accrued. It was submitted that the effect of the Notification dated 4th July 2006 prohibiting the export of chickpeas, was to treat the date of the ban as 22nd June 2006 when a decision to that effect was taken by the Cabinet Committee on Pricing and not 27th June 2006 when it was in fact notified in the Official Gazette. Consequently, one of the issues that this Court addressed in the Agri Trade India Services Pvt. Ltd., was whether the Notification dated 4th July 2006 was ultra vires Section 5 of the FTDR ....
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.... 42. Therefore, in light of the decision of the Supreme Court in Asian Food Industries, confirming a similar determination by a Division Bench of this Court in Agri Trade India Services Pvt. Ltd., the first issue is answered in favour of the Petitioners. It is held that the Press Release dated 1st December 2010 issued by the MoT imposing a ban on the export of cotton yarn is ultra vires the FTDR Act. Validity of the Notification dated 22nd December 2010 43. The first ground on which the validity of the Notification dated 22nd December 2010 is challenged is that in terms of Section 5 FTDR Act read with Section 3(2) thereof it could have been issued only by the central government and not by the DGFT. Reliance in support of this submission is placed on the decision of this Court in Atul Commodities Pvt. Ltd. v. Commissioner of Customs, Cochin. 44. The entire text of the Notification dated 22nd December 2010 has already been extracted hereinbefore. A careful perusal of the said Notification shows that it has been issued by the DoC in the MoCI. Although it is signed by the DGFT, when contrasted with the policy circular issued by the DGFT in terms of the said Not....
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.... of chickpeas in Agri Trade India Services Pvt. Ltd., was made retrospective from 22nd June 2006 and Clause 1.5 of the FTP was made inapplicable to such exports that were in the pipeline prior to that date. In the present case the impugned Notification dated 22nd December 2010 makes Paras 1.4 and 1.5 of the FTP inapplicable from 1st December 2010. However, the transitional arrangement in Clause 3(ii) of the impugned Notification dated 22nd December 2010 was not present in the Notification dated 4th July 2006 imposing a ban on the export of chickpeas. The second difference is that the Clause 3 (ii) as amended on 29th December 2010 permits all such exports in respect of which EARCs have been granted by the Textile Commissioner "within the quantity limit for which such registration certificate has been issued and within the validity of such registered contract" on or before 1st December 2010. 48. In para 48 of its decision in Asian Food Industries the Supreme Court affirmed this Court's decision that the ban on export of chick peas could only be prospective. However this meant that only those exports were permitted which satisfied the requirements of Section 51 of the Customs ....
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....ded on 29th December 2010) different from the Notification dated 27th June 2006 in Agri Trade India Services Pvt. Ltd. The decision to place a cap of 720 million kgs on the exports of cotton yarn for the year 2010-2011, i.e. till 31st March 2011 was a policy decision based on prior consultation with the CYAB. The ban would apply once that limit was reached. It could be reached on a date even prior to 22nd December 2011. In the context of the applicability of the ban, it is not the date of the Notification but the date on which the cap on the quantity of exports is reached that is relevant. Even if it is held that the impugned Notification dated 22nd December 2010 is prospective, if in fact the cap of 720 million kgs. is reached on an earlier date, the ban would anyway become operative from that date notwithstanding that an EARC may have been issued thereafter. 50. A unique aspect of the present cases is that the cotton yarn manufacturing industry was aware that there was going to be a ban on the export of cotton yarn at least more than a month prior to the ban actually coming into force. The minutes of the CYAB meeting held on 29th October 2010 make it abundantly clear the ....
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....t that irrespective of the quantity of contracts submitted for registration by the various exporters, the office of the Textile Commissioner was obliged to issue the EARC on the very same day. In any event, when the total quantity of registered contracts reached the thresh-hold limit of 720 Mn. Kgs., further issuance of EARC was stopped altogether. Further, it is submitted that this figure of 720 Kgs was arrived at after careful evaluation of demand and supply figures and taking into account the requirement of domestic industry in general. Notwithstanding, however, the total quantity of EARC issued to the Petitioner during the period April, 2010 to November, 2010 was 6975 MT which is 23.05% of the total EARC issued by the Ahmedabad office. Having already exported such large quantities, it is not open to the Petitioner to contend that it had the vested right to continue exporting cotton yarn regardless of the devastating impact of unchecked exports on the domestic industry, on the national economy and on the employment of millions of people." 52. In the above circumstances, the Petitioners can hardly argue that they were not prepared for the ban which was announced on 1st De....
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....etitioners to substantiate such charge. It is stated that some of the Petitioners managed to upload their export contracts on the website of the Office of the Textile Commissioner prior to 1st December 2010 while some others failed to upload them due to the system being shutdown. Whether this was on account of any deliberate omission on the part of the Textile Commissioner's office would require investigation into disputed questions of fact which is not possible to be undertaken by this Court in exercise of its jurisdiction under Article 226 of the Constitution. The case of KKTL 56. The argument advanced on behalf of KKTL that it is an EOU and therefore constitutes a separate class, is indeed an attractive one. However, given the policy of the need to control the price of raw cotton and cotton yarn in the domestic market, and given the fact that KKTL also purchases raw cotton from the domestic market for the manufacture of cotton yarn, KKTL cannot be said to be outside the purview of the ban on the export of cotton yarn. 57. In examining the submission that there was no overriding public interest to impose a ban on export of cotton yarn manufactured by EOUs, it i....
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.... interest, it would be entitled to revise the policy and lay down new policy. The Court, therefore, would prefer to allow free play to the Government to evolve fiscal policy in the public interest and to act upon the same. Equally, the Government is left free to determine priorities in the matters of allocations or allotments or utilisation of its finances in the public interest. It is equally entitled, therefore, to issue or withdraw or modify the export or import policy in accordance with the scheme evolved." 59. It is possible that the impact of the ban on KKTL would be proportionately far greater compared to the effect on other non-EOU manufacturers of cotton yarn. However that by itself will not persuade the Court to interfere with what is essentially a policy decision of the central government. As explained in Secy. to Govt. of Madras v. P.R. Sriramulu, (1996) 1 SCC 345 (SCC, p.356) : "15....the State enjoys the widest latitude where measure of economic regulations are concerned. These measures for fiscal and economic regulation involve an evaluation of diverse and quite often conflicting economic criteria, adjustment and balancing of various conflicting social and....